Thursday, January 9, 2014

Comex Gold Inventory: Do You Really Trust The Banks?

     
"The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only." - The disclaimer now posted on the Comex gold and silver daily warehouse stock report as of Monday, June 3, 2013.

How would you like to get your bank statement in the mail from JP Morgan or Bank of America and see this disclaimer added at the bottom: "The information in this account statement is taken from sources believed to be reliable; however, JP Morgan Chase & Co. disclaims all liability whatsoever with regard to its accuracy or completeness. This account statement is produced for information purposes only."  What would go through your mind if that was stamped clearly on your next account statement?

The CME "believes" the inventory reports are "reliable" but will not back up the accuracy.  Do you trust those numbers?  Before you answer that question, keep in mind that the big banks have already been accused and successfully prosecuted for reporting and business fraud in several other areas of their operations.  Also keep in mind that the numbers produced by the CME on a daily basis come from reports generated by the banks themselves.  The numbers ARE NOT subjected to the scrutiny of any regular independent physical audit.

With that said, there has been a lot of discussion lately about the amount of gold inventory on the Comex in relation to the amount of futures contracts.  The imbalance in paper vs the total amount physical gold as reported is catastrophic to the Comex should enough accounts who are long gold demand delivery.

The debate and illustration of the situation with the Comex inventory reports lately have ranged from the sublime to the absurd.  Earlier this week a blog post appeared out of Australia that tried to sound knowledgeable and authoritative in justifying and explaining why the distinction between "registered" stock and "eligible" stock is irrelevant. Well, if you know enough about the facts and are not too lazy to look up the actual CME published rules, you know that the CME gives the banks latitude deeper than the Mariana Trench in their accounting and reporting rules.  The distinction between "eligible" and "registered" is indeed irrelevant.  It's the reliability of the reports that are questionable - just ask the CME attorneys.

There's another well-known newsletter proprietor who makes a healthy living selling his analysis of the CME weekly Commitment of Traders gold and silver report.  He's willing to lash out at bank corruption and fraud openly and freely.  And yet, for purposes of his analysis, the numbers generated to produce all Comex, CME and CFTC reports - numbers, mind you, that are generated by the banks themselves - are 100% accurate and bona fide.  And he's adamant about that. Go figure.

The CME completed its acquisition of the Comex in August 2008.  Yet, that legal disclaimer above did not appear on the Comex gold and silver inventory reports until June 2012.  Everything happens for a reason and the lack of disclaimer was not an oversight - as said silver analyst has stated.  Furthermore,  the only role served by the analysis produced by said Australian blogger (who happens to work for the Perth Mint which has been scrutinized in the past for its own inventory issues) is a theoretical discussion of how the banks can play a "shell game" with the inventory that they do report.

The real discussion needs to focus on the legitimacy of the reports themselves.  Banks by design use fractional asset/liability management and there's no reason to believe that they treat their gold holdings, whether custodial or owned, any differently. What needs to happen is we need to have an accountability system in place that is based on frequent independent audits and NOT reliant on bank generated reports.

"Faith" is defined as "belief without evidence."  If you want to believe that the numbers being reported by the banks which are used to produce all public reports generated and published by the Comex, then you are doing nothing more than placing faith in the banks.  The only real evidence we have is that the CME will not legally backstop the numbers that are produced.

How much faith do you have in the banks?

15 comments:

  1. Back in the olden days when I started my career as an auditor, there used to be a comment somewhere that in overall respected the financial statements were materially correct, meaning that was nothing wrong in the financial statement that would change an investors mind.

    fast forward to today: we have the big kahuna-mark to model accounting which Congress forced on FASB in 2009. We have a number of govt reports which are intentionally materially misleading.

    We have the largest piece of shi--err legislation that was rammed and jammed thru before xmas 3 years ago that have to have misrepresentations (better than saying fraud or lying) by members of Congress and WH to get passed thru the lazy liberals.

    but here --with comex inventories, and data--whats material or not esp with a qualifier like Dr Koop had the tobacco makers put on cigs which saved the tobacco companies collective asses from litigation.

    its called "lawyering up" and its a huge red flag.

    ReplyDelete
    Replies
    1. even if you had completely honest audits, could you even follow it today?

      Sleuths Hunt for Kazakh Bank’s Missing $6 Billion

      Private Eyes

      BTA’s Prosyankin says Ablyazov had been using the bank as his personal private-equity fund.

      “He controlled the bank as chairman and headed its credit committees, but on the other hand, he was the beneficiary and controlling shareholder of the borrowers,” Prosyankin says. “He controlled both sides of the deals.”

      Proving Ablyazov’s ownership in court was going to be tough, Hardman says.

      “We couldn’t just follow the money,” Hardman says. “We had to follow his people.”

      If Ablyazov stays behind bars in France or elsewhere, Prosyankin says, the hunt for the $6 billion might get easier. The BTA adviser says he suspects that when Ablyazov was on the run, he continued to shield assets from BTA by burying them in newly created daisy chains of shell companies.

      “It was a complex fraud machine,” Prosyankin says. Now in jail, Ablyazov can no longer manage such a convoluted structure so easily, Prosyankin says.

      In response to growing concerns surrounding transparency, particularly in London, U.K. Prime Minister David Cameron said in November that he would push for a law in 2014 requiring closely held companies to disclose their “ultimate beneficial owners” in a public database.

      http://www.bloomberg.com/news/2014-01-09/hunt-for-kazakh-bank-s-missing-billions-leads-to-riviera.html

      everything is created to obfuscate............................

      Delete
  2. Fractional reserve commodities trading: only those who have taken delivery will survive.

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  3. No faith in banks. I have faith in physical gold that is buried in my yard.
    The lemmings and lambs are lined up and ready to be fleeced once again, it is just a matter of time.

    ReplyDelete
  4. Billy Waters the consummate gambler once said that he had never been cheated by another gambler. Ask him about his dealings with banks and brokers and he will tell you about the millions of dollars he was cheated out of by "those guys wearing expensive suits". I'm with Billy, I trust whores and gamblers never bankers or brokers.

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  5. None!


    (Thank you for informing and asking...)

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  6. Dave:

    has anyone done a math calculation to figure out how many years more the system can go with low bond rates with those gigantic pension plans going cash flow negative, seeing their older bonds mature and be replaced with new issues paying a princely 3%?
    they have to make 8% I think is their actuarial number, but there's no more RE bubble valuations to put in there either.

    http://www.prometheusmi.com/2014/01/08/historic-sentiment-extreme-suggests-stock-market-bubble-on-verge-of-collapse/
    According to the valuation components of the data used to calculate investment risk, the S&P 500 index is priced to produce an annual return of only 2.0 percent during the coming decade.


    Surprise is look at the 1987 crash: it wasn't just stocks that went under. ALL paper did.
    (but the $USD actually was at the end of its 50% crash from the feb/85 162 high.)

    ReplyDelete
    Replies
    1. Thanks for the link. The entire system is being dismantled. Look at JPM's announcement today on the management of the food stamp system. That will end up being a giant clusterfuck just like Obamacare.

      It's all part of a planned dismantling. Everyone under the sun except complete idiots knows the U.S. can no longer afford to pay for the giant entitlement and pension system. Unless it starts to print several trillion a year.

      Delete
  7. Why the Brits have trained thousands of cops in water cannon use:
    http://www.marketoracle.co.uk/Article43882.html

    £25 Billion More Cuts, Economic Terrorism on Britain's Working Class
    Colin Todhunter writes: British Chancellor George Osborne this week announced massive cuts of £25 billion after 2015. This included further welfare cuts of £12bn. Osbourne said that 2014 would be a year of hard truths. He claimed that his economic policies were working, but admitted that the bad news is there’s still a long way to go.

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  8. Today's framed market rigging of gold and silver will hit the wall. It has to. It is on a track at a terrifically frantic speed forward which has no other reaction response to switch to.

    The designers know this. The scare tactic in the form of trolls paid throughout the cyber world are to help shake out the weak hands. It is relentless. They will stop at nothing to create doubt regarding sound accumulation and holding of physical gold and silver.

    Golden rule to remember : paper cash = currency
    currency = debt
    physical gold and silver = real money
    real money owes nothing to anyone
    - period !
    Don't buy the lie , instead stack high .

    ReplyDelete
  9. Looks like Old Yeller is the new Slumdog Millionaire LOL:
    http://www.zerohedge.com/news/2014-01-09/janet-yellen-nations-new-chief-slumlord
    It was a 2008 movie.

    Is that a shock collar?
    http://www.zerohedge.com/news/2014-01-09/goodbye-greenspanbernanke-put-welcome-bernankeyellen-collar

    ReplyDelete
  10. Dave, anybody who regards Bron Suchecki as an expert is a complete idiot. Bron either has no understanding about what he is talking about or blatantly lies. For instance, some weeks ago, he appeared as an expert on TFmetalsreport and uttered the following shit:

    "For instance, if interest rates are high, then a bank could sell gold spot (depressing the price now) and on full settlement in 2 days turn around and buy the future (raising the price later) for which a margin, not full payment is required. Then they can invest the cash raised in a higher yielding bond in some currency. This is called a carry trade. At maturity, they can roll it over, selling spot and buying future, or unwind it."

    Anybody who has some basic understanding about banking knows that it's hogwash because when interest rates move up, the bank internal funding rates (often linked to libor) will move up in tandem too...

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    Replies
    1. Who regards him as an expert? LOL. He's sleazy bag of garbage, misinformation, disinformation and lies.

      Delete
  11. Well the real is No one should have faith in any banks because these money changers were bailed out and the burden placed on the people. How much faith can you have in someone whom you have to give money to(for stealing and gambling)? Now they have stolen and gambled off other countries gold. There is no one left to fleece for gold and now the only thing is left to do is fleece the people out of the money they have for retirement. I just read JP Morgan is giving up foodstamps and card services and also selling their commodities business.(I guess one). They have been fined over 25 billion so I guess they are bailing out on government before SHTF.

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  12. Friday, January 10, 2014
    COMEX Monthly Gold Delivery Dominated by JP Morgan in 2013

    February is a big month! I am forecasting that at least 7,500 contracts will need to be settled this February, which is significantly less than in February 2013. I am guessing that the number of Feb settlements will be lower than last year because: 1) total open interest and open interest in February contracts is about 10% and 15% lower, respectively than at this time last year 2) more contracts settled in December than the year before which may have satisfied or pulled forward some demand for physical 3) COMEX registered gold inventory is low and the COMEX banks will entice more Feb contract holders to roll over to a future month. Currently, COMEX gold inventory is about 417k ounces in registered and 7,361k ounces in eligible. Also, my forecast is conservative because utilizing historical ratios is risky in volatile situations. But, it's all I've got.

    I learned from commentor Mick that the same gold/warrants may be used to settle multiple contracts in a given month because the same firm can stop and then issue the same warrant. So to the extent that stops and issues by the same firm are netted together the same gold can be used to settle multiple contracts. By reviewing the monthly CME delivery notice report for 2013, the average number of contracts that are stopped and issued by the same firm in a typical month is about 15% of the total volume.

    http://rikgreeninvestorforum.blogspot.com/2014/01/comex-monthly-gold-delivery-dominated.html

    ReplyDelete